Skip to main content

tv   American Politics  CSPAN  July 5, 2010 12:30am-2:00am EDT

12:30 am
and i have to say under the last government there was a whole year during the financial crises when the prime minister of our country didn't even meet the first minister of scotland. that will not happen under this government. we believe in respect. >> matthew hancock. >> can i tell the prime minister how pleased my constituents were when he found -- when he found 50 million pounds to help those who had been promised funding but left high and dry by the previous adminnstration. will he assure that the application for an college in my constituency is given the attention it deserves so that haverhill can get the college that it was promised. >> well, my honorable friend makes a public speech application and i'm sure the treasury would have been listening carefully. in a budget when reductions had to be made we sneaked spending on colleges which and the numbers on apprenticeships.
12:31 am
>> the local government has listed my constituency as the one that's received the biggest cuts in britain nearly 3 million pounds at district level. as he's aware, it's an area of poor health, low incomes and some of the worst housing in britain. in fact, over the weekend the liberal democrat leader, my neighbor -- the cuts by this government are hitting areas like bernly much harder than affluent areas. did the prime minister agree with his colleague in the liberal democrat party? >> the point i would make to the honorable gentleman is, of course, there are going to be difficult decisions in the budget. there are going to be public spending reductions. everybody should know that. everybody should be honest about it rather than pretending they shouldn't happen if we didn't have a difficult government. what we will do is help areas of need through the tax changes we're makingnd also through the regional development grant of a billion pounds which they are able
12:32 am
>> each week that the house of commons is in session, the air prime minister's questions on c- span2 live and then again on c- span at 9:00 p.m. eastern and pacific at c-span.org can find an archive of past prime ministers questions. >> for a snapshot of washington, and the c-span congressional directory, a reference guide to every member of the house and senate, the president's cabinet and state governors. order it online at c- span.org/store. >> now, a portion from today's washington journal on the long term proposals for restoring the gulf coast region. aul
12:33 am
harrison, senior director of the environmental defense fund here to talk to us about gulf coast restoration. there's a "washington post" piece this morning, for now, assessment of oil spill damage is a joint effort. the government and bp working together but it's to the concern of some. first off, what's your own assessment of what's happening down there? guest: well, first the important thing to remember is that this is the largest single event environmental disaster we've had in our lifetime and it is still very much going on. the oil is still coming out. some of it is being collected, a lot is not being collected. it is still hitting the fragile louisiana marshes, gulf coast beaches. and we still have at least a month, probably two months even if theelief wells are effective, to have oil out in the area hitting the marshes, hitting the beaches. so as all of this is happening, as the ongoing effort to shut
12:34 am
this off is happening, we are having to figure out what the impacts are on the environment. so having -- and it's important to remember that the -- this is not something we've planned for, this is not something we've experienced before. so a lot of the science work that needs to be done, we weren't prepared for that, it hasn't happened. one big concern is that this conversation is happening between the government and bp and making sure that this is happening in public. that the best scientistses in the world are brought in here to see this, to be engaged, to provide solutions and answers. and i think that is only really beginning to happen. host: so back to that subhead of that piece, government and bp working together. it's got a lot of people concerned. why is that? and what should be done about it, in your view? guest: well, people are obviously concerned because
12:35 am
both the government and bp have an interest and everybody's thinking that e everything is ok. that they've got it under control. the reality is, because we weren't prepared for this, because this has happened in a way that we've never expect, it's not under control. at least in terms of our understanding of what the long-term impacts of this are on the fish, on the birds, on the eco system. host: let's get the phone numbers up for paul harrison, with the environmental defense fund. we're talking here about gulf coast restoration. our guest has been educated att the college of william and mary, also has a law degree from fordham university in the bronx new york, was a trial lawyer at the u.s. justice department from 2000-2006. currently senior director for mississippi river and east coast center for rivers and
12:36 am
deltas, part of the environmental defense fund, senior direct there are. and as we look at restoration, mr. harrison, what's the prescription from your area? if you don't quite know how bad it is yet, how are you going to get your head around how to restore things? what's your process going to be? guest: well, one of the things that people need to rember about the louisiana wetlands in particular and the gulf of mexico is that these are places where environmental damage has been happening for the past 80, 100 years. you can take the louisiana wetlands, for example, because we made some decisions on how we manage the mississippi river, the wetlands are actually the delta of the mississippi river. this is where the riv comes down, it's draining 41% of the united states, it's eroding all that land and sediment. and it builds this land mass, where new orleans sits. it's where the fishing communities are. and it's an ongoing battle
12:37 am
between the gulf of mexico and the mississippi river to build land. we pretty much turned off the mississippi river's ability to build land so that we could have flood control, so that we could have big navigation channel. and then, starting in the 1930s we started doing oil and gas develment out in the wetlands. louisiana was the first place that anywhere in the world where people went out into the water to start drilling for oil. and that led to the development of pipeline canls and dredging. it's basically a huge dustrial infrastructure on top of a very fragile eco system and that has caused huge damage as well. so we know a lot about how to restore this system. people have for the past 30 years known that the system is going into collapse actually since the early 1900s, we've lost about 2300 square miles of the coastal wetlands, like the entire state of delaware disappearing or the entire urban area of greater chicago turning into open water.
12:38 am
and so while we are looking at the questions of what the direct impact is from the bp disaster, we also know how to restore the system. it's to reconnect the river, the water, and the sediment to the wetlands and allow them to build back. and it's much the same for the gulf of mexico, for the deep waters. this is going to have significant impact. we don't know exactly what that impact is going to be but we do know a lot about how to manage fisheries, for example, to make sure that we're n taking too many fish so that they can't recover. we have to use a lot of those tools moving forward. host: the first call, republican, jean, go ahead. caller: hello. i was wondering, in the long run do you think once this oil is cleaned up, but it sounds like years, that there actually will be a time when we are actually restoring the area,
12:39 am
especially along the louisiana coast which has been destroyed in other ways? guest: it's an excellent question. and it's really within our control. it's whether we make the decisions as a natio to invest in the long-term health of the wetlands and the gulf. for example, there are going to be probably billions of dollars out of this in terms of what are called natural resource damages that bp will have to put on the table. similarly, there are going to be penalties, anywhere between 1100 to $4300 per barrel of oil released. do those go into the general treasury and disappear or do we reinvest them in the gulf of mexico or the louisiana wetlands? the same with the damages. do we take those money and say -- and this is what the president talked about in his oval office addre.
12:40 am
do we take those moneys and make sure we are solving the long-term big picture problems, going beyond the crisis of the moment? those are policy choices, they're choices in terms of how government opeeates, how we spend our money. but they are very much within our control. and if we do it, we do have the gulf, the louisiana wetlands have the ability to recover. people just have to help. host: so who answers those questions, the two that you just raised? the folks here in washington, states, companies like bp or combination? how do you get to the answers? guest: it's everybody. and it's also the larger oil and gas industry. so i raise that issue of weved we have had basically a hundred years of damage from oil and gas activity here. now, mind you, this isn't a moral question. this started well before we had environmental laws. the oil and gas there fueled
12:41 am
the nation through world war ii, through the post war boom and now still produces a third of our oil and gas. so, but here we are now and we are at this critical turning point of do we reinvest in restoring the wetlands, do we reinvest in the gulf. so it will probably require action from congress at least in the longer term because as the caller mentioned, this is going to take years. and we all know that politics is short attention span theater. we've got to make this a permanent activity. but it also requires the gul governors to get together and say we're ready to be partners on restoration, we're rea to do what we need to do to talk to the folks on the grown and make sure things are lined up. and final lirks it will require the administration to seamlessly transition from stopping the damage, from stopping the spill into
12:42 am
restoration. now, they've asked secretary of the navy to spear head how this all works and theresident has spoken about his understanding of it. so we have all the pieces on the table. the question is just how they come together . host: let's hear from shirley, democrat's line from detroit. caller: good morning. i would like to know your thoughts on any crnl charges that should be levees. and what do you think the long-term effect would be with any policies made with the democrats once the republicans are back in office which i feel will be inevidentable? guest: the investigation of the blowout is still ongoing. the standards for criminal penalties are relatively stripped. i think everybody who has looked at what happened there from thenitial explosion that tragically killed 11 people to this ongoing disaster that's
12:43 am
now 70 plus days out, and it's pretty hard to look at that and ppsay that somebody didn't frankly do something criminal. it wasn't just a mistake. this wasn't just an accident. this should never have happened. now, the question of whether this is a partisan issue, a republican-democrat issue, i mean, obviously we have, particularly in the governors we have a series, different parties in charge. it would be a real tragedy if this becomes a political football. this has to be something that is resolved in the long term as basic federal, basic state policy. host: lots of of course in the paper about this. miami herald lead story talks about lawsuits. gusher of oil brings geiser of lawsuits, story out of
12:44 am
tallahassee, businesses, fishermen, coastal residents, everyone is lined up to sue bp. so bp commited to this $20 billion fund. how do lawsuits play into the picture in that? guest: one of the important pictures about the $20 billion in escrow, which is $5 billion a year for the next four years bp commited to that was that the deal the president struck with bp is that the fact that bp put that money into the pscrow fund had no impact one way or the other on any legal obligations, any legal standards. so very quickly you are seeing significant economic impact because of the bp disaster. you are seeing fishermen obviously really stressed and many of these fishermen are from the same communities that suffered from katrina and rita and gus tove and ike. they've had a really rough five years. but the economic impact is
12:45 am
obviously spreading out to the othe gulf states and even further. so you are going to see a lot of private lawsuits. you're going to see a lot of people fighting over that $20 billion and perhaps even more. th may be a place where congress needs to step up and say, we need to put some bounds on this. we need to make sure that people who have been impacted are made whole. we need to make sure that people are put back to work. bute also need to make sure that the money tt comes out of bp here doesn't just disappear into a black hole and is actually put back into restorinthe communities, restoring the eco system, restoring the economy of the gulf coast. host: we should point out too this piece in the business section of the "new york times this sunday in following the money, where bp's money is landing. they have a chart here. they say that so far sce may bp has paid more than $144 million in claims, 55 million going to just basically loss of income. and then money going to
12:46 am
fishermen, shrimpers, oyster harvesters, crabbers, charter boat owners, rental property owners. a lot of local folks there. it's paid just under a third of the more than 950,000 claims it receives -- 90,000 claims. next call from tampa. chris, go ahead. caller: the question is, if foreign skimmers were let in on+ day one, how many more barrels of oil could have been collected? it seems like the gulf is impacted by the obama administration due to union pressure. guest: well, i think no question that more skimmers is better and we should have had more skimmers right up front. one the unfortunate realities, and this is something we'll have to talk about as a nation and we are in congress as response bills move forward, is we set up the system where the oil companies were responsible for planning the response to any potential
12:47 am
problems. you know, these are some of the largest companies in the world. and the deal was, you leased some land. it's under water. from the federal government. you did all the operations, you gave back a portion of that money. but then you were responsible for the operations and you were responsible for putting together a plan if there were any zaferts. you were responsible for -- disasters. you were responsible for putting in place the resources. and one thing we have seen here is those plans were completely inadequate. and the way we set tup structure is that the federal government was not responsible for making these decisions. i think that was a mistake. but that's where we were the day of the explosion. i think the administration has consistently said that they're in charge, that they're using all the resources available. i think you have seen more and more resources brought to bear. the question of political blame
12:48 am
here will be discussed for probably at least a year. but the fact is that we have got to put in place the kinds of struct turs to make sure that we are ready to attack these kinds of industrial disasters from day one. and, frankly, not have to wait for equipment to be brought in from the other side of the world. that equipment should have been on site ready for any potential problems in the gulf of mexico. host: we have texas. linda on the line for democrats. good morning to you. caller: good morning. host: go ahead with your comment or question. caller: first, i just wish just god bless america, the united states, period. but what i want to know is how is this really a big difference from katrina from the oil? i notice the 11 people did e get killed and i hate that but also i noticed more died with the katrina. and also, i noticed it was people are begging for milfor their babies. through this here is so much
12:49 am
different and i mean, it's just a bigifference. and it's noticeable. and i just want to know why. guest: so this is a very different kind of situation from katrina. you kno but it has many, many parallels. and you're right to emphasize that the human impact is quite different here. at least as relates to the city of new orleans. you know, you can take, for example -- and when you get out into these rural communities down in the buyo what people think of as louisiana cagen culture, communities that were not really covered during katrina and gus tove and ike, had in many ways just as bad things happen to them. you know, those folks give you an example. for example, fishermen during those big storms would have had his or her home destroyed. would have lost their boat. but they knew that the shrimp were going to be there when
12:50 am
they came back. they nvested in their businesses, they rebuilt their boats and got out there. now the bp disaster happened. it's very different. they still have their boat. many are asked to go out and do things like control burns but they don't know whether their future is there in terms of their fishery and culture. and it's a very different thing that way. i would point out that this thing is still going on and we are just entering what the national weather service has forecasted to be a severe hurricane season. so ware going to have oil in the water, we hope and we pray that there will not be a significant hurricane that goes through this area. but we have to be cognizant of the fact that we may sll have a hurricane, we may have oil brought in and we may have levee failures, we may have those kind of problems again. and we really hope that, and believe, that the government has put in place new structures so that we don't have theinds of loss of life that we had during katrina, that we are much more prepared for that.
12:51 am
so we learn here, w >> tomorrow, stephen rose on his latest book, why america will emerge stronger for the financial crisis. also, a look at trade between u.s. and china. following that, a chap with tom say he on new hampshire is balanced budget. that is live here on c-span. >> today, on "washington journal" a look at trade between the u.s. and china with sam golson, editor and publisher of the washington trade leonard. that is live at 7:00 a.m.
12:52 am
eastern. >> the commission will come to order if we can do that. thank you. thank you all. let me just say a word about the passing of a giant in these last days, senator byrd. the senate will miss him greatly. he was an institutional memory. there was no one liked him in any sense . byrd loved my father. he said that when i came here, he said that your father was a wonderful man, patient, caring. about a year later, i got in a real dustup with robert byrd.
12:53 am
i never called him bob. he said that he was thinking of my father again. he said he was -- he said that i was not like my father at all. thank you again for being here. we have established a high level of trust and i think the commission is establishing trust. that is something that is very sadly missing in this village since i was first here in 1979, where we actually trusted each other. your word was your bond ended he broke that, you knew who not to trust again. he started with trust rather than starting with no trust and working towards trust. that is hard to do.
12:54 am
i appreciate you staying in the game and staying in the room. it is a strange situation. we are not out to do somebody in, i have received some lovely communications in these last weeks. i never had an unlisted number, which was a sick idea, but i never did have one. i have some great coles recently. -- calls recently. they said i looked like a crane in a swamp and i thought that was pretty crude. anybody asked if somebody had said if i look like al simpson.
12:55 am
that is how it works. certainly, flash words abound. that is how it works in the sea. the word cut is now communicated only with security. cut social security. balance the budget on the backs of seniors. nail the rich, chief the poor, her doctors, health lawyers, there is such a great list. for me, i am portrayed as an ornery old grump. you want to be sure to scratch that one down. so, raising taxes, that one just
12:56 am
since a surge to the group's. the latest one is that this is the cat food commission. i had never heard that. but from my army days in the infantry, when someone would make a statement as bizarre as that, we would confer upon them of the order of the green weenie with oak leaf clusters. i wanted to meet the person that called it the cat food commission. it would be a joy for me to do that. let's move on. you either pass or kill a bill with emotion, fear, guilt or racism.
12:57 am
i cannot tell you how much i can appreciate just being here and listening. some of it is eye-popping. today, we are going to have quite a session and we will tell people not to just come to tell us why we are crazy and why we are wrong, but tell us what you would do to help us restore structural reform to a country that i assume we all love very dearly. with that, i will defer to the numbers man. he submits numbers to me that are like reading an egyptian newspaper. >> if it makes you feel any better, last weekend, i got a call. it was an anonymous call. somebody said that if you would put those of looking glasses you wear on al simpson, you two to be twins.
12:58 am
there are a couple of cranes up here. [laughter] i had a couple of things i wanted to say. last weekend, the leaders of the g-20 gathered in toronto which i know all of you paid attention to to discuss the same questions that we are dealing with as a group of 18 here for our own country. of those questions were how can we protect what is a very fragile economic recovery while making the commitment to slow, stop and then reverse the rising level of debt that jeopardize our grandchildren's future and our country's standard of living. the g-20 approved two goals, the first i felt was good to cut the deficit in half by 2013.
12:59 am
when you are sitting at a gdp ratio of 10% and get down to 4%, that is no great accomplishment. the second goal is in line with what we agreed to do by signing on to do this commission and that was to stabilize the debt by 2015. our charter calls to bring the deficit to gdp ratio down to 2.8%. that is $250 billion in deficit savings that we have to find in the year 2015. i was glad to see that president obama made it clear that no one should be surprised next year but he brings forward recommendations that have real budget cuts in them.
1:00 am
i expect that we will make those recommendations to him. recommendations that he has said will reduce the cost of entitlements and help restore our nation's long-term fiscal string. i do think that there is no conflict in the two worries that people have about our efforts. none of our recommendations take place until fiscal 2012. if economic recovery is not on its way by then, we have big problems that we have to face. we should be able to tackle the second part of this, and that is to stop, reduce and then reverse this ever-increasing amount of debt that is building up that will destroy our nation. today, we have an interesting agenda. i will start from the end. . .
1:01 am
and send your own ideas to how we can reduce the deficit to
1:02 am
.fiscalcommission.gov. we will hear from the three working groups, which have been working really hard in a non- partisan manner, and i think we are making progress and will also take some time to discuss our priorities, our principles, and our game plan for the months ahead. but first, we're going to get a chance to hear from the director of the congressional budget office, who will announce this new long-term's budget outlook, and what is clear to me from glancing at it is that if we do not restore some fiscal sanity around here, as a nation, we are going to go broke. i know that is not a word that people like to use, but it happens to be true. we face the most predictable
1:03 am
economic crisis in history, and if we stay on automatic pilot, the debt we are accumulating will be like a cancer. it will definitely destroyed this country from within. the first bipartisan agreement we reached in this committee, commission, and i think it was a good one, was to use cbo numbers. they inspire trust and confidence on both sides of the aisle, and i want to thank you, doug, and i want to thank your team for the impartial help that you have given to us as a group. it has been invaluable, and i would now like to turn it over to director elmendorf.
1:04 am
>> thank you. the projections include the cbo estimate of the impact of the significant health-care legislation enacted earlier this year. that estimate is unchanged from the one that cbo and staff of the joint committee on taxation released when that legislation was being considered. budget projections, as you know, are increasingly uncertain as they extend further into the future. this report focuses on the next 25 years. however, because considerable interest exists in the longer- term outlook, some information about the next 70 to 75 years is also available in the report and available on the website. a plan this morning to summarize the key features of our analysis, and then my colleagues and i will be happy to take your questions. because this report was just released, and you have not had a chance to look at it, i will talk about it more in length and then i would in normal testimony. as you know, the federal
1:05 am
government has recently been recording the largest deficits as a share of the economy since the end of world war ii. as a result of those deficits, the federal debt held by the public has surged. at the end of 2008, that debt equaled 40% of the nation's annual economic output, measured by gdp. of above the 40-year average of 46%. since then, debt held by the public has shot upward. we project the federal debt will reach 62% of gdp by the end of this fiscal year, the highest percentage since shortly after world war two. the sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the severe recession and turmoil in financial markets. however, the growing debt also reflects an imbalance between spending and revenues that predates those economic dominance. as the economy recovers, and the policies adopted to counter a recession, and the financial turmoil phase out, but to the
1:06 am
deficits will probably declined markedly in the next few years. but over the long run, the budget outlook is daunting. the retirement of the baby boom generation portends a significant and sustained increase in the share of the population receiving benefits from social security, medicare, and medicaid. moreover, per capita spending for health care is likely to continue rising faster than spending per person than other goods and services for many years, although the magnitude of that gap is quite uncertain. without significant changes in government policy, those factors will boost federal outlays sharply relative to gdp in coming decades. under any plausible assumptions about future trends in the economy, demographics, and health-care costs. we will begin by discussing the major health care programs officials and security. we can go to the second slide. cbo projects that if current
1:07 am
laws do not change, federal spending on major, mandatory healthhcare programs will grow from roughly 5% of gdp today to about 10% in 2025, one-quarter of a century from now, and will continue to increase thereafter. those programs include medicare, medicaid, the children's health insurance program, and the subsidies that will be provided through the insurance exchanges established under the recently enacted legislation. to put that in context, an increase of five percentage points of gdp will be the equivalent this year to more than $700 billion of additional spending. as i noted, the cbo projections include all the effects of the health-care legislation, which is expected to increase federal spending in the next in years and for most of the following decade. by 2030, however, cbo expects that the legislation will slightly reduce federal spending for health care if all of its provisions are fully implemented. let me know if parenthetically
1:08 am
that if all of its provisions are carried out, the legislation will also increase the revenues and not net reduced budget deficits of the 2010 to 2019 period and in subsequent years, as cbo indicated in the estimates prepared in march. returning just to spending, it enacted the legislation did not cause cbo to change its estimates of the longer-term growth rates for spending on government health-care programs beyond 2013. the uncertainties involved in projecting such growth rates many decades in the future are just too great. but we did this in the reduction and the level of spending in 2013 would persist, and that assumption yields lower projections of health-care spending in the longer term, even without any changes in those long-term growth rates. under current law, spending on social security is also projected to rise over time as a share of gdp, albeit much less dramatically. cbo projects that social security spending will increase from less than 5% of gdp today to about 6% in 2013 and then
1:09 am
stabilize at roughly the level. cbo will be releasing soon a report on a number of different policy options for changing social security. that report focuses on how the options, if implemented, would affect social security finances and alter the distribution of benefits paid to and taxes paid by people in various groups, distinguished by household income in your birth. among the options considered are a variety of ways of reducing benefits and raising payroll taxes. all told, cbo projects the aging of the population and the rising cost of health care will cause spending on the major mandatory health-care programs and social security to grow from roughly 10% of gdp today to about 16% of gdp 25 years from now if current laws are not changed. by comparison, spending on all of the federal government programs and activities, excluding interest payments on debt, have averaged 18.5% of gdp
1:10 am
over the past 40 years. to put u.s. as a policy on a sustainable path, lawmakers would have to substantially reduce the growth in outlays for those programs relative to the amount that cbo was projecting or else match that growth with the equivalent declines in other federal spending it, corresponding increases in federal revenues, or some combination of the two. today's report, like last year's, presents the long-term budget picture under two scenarios that in body to assumptions about future policies governing future spending. the extended baseline scenario adheres closely to current law. in contrast, the alternative fiscal scenario and corporate several changes to current law that are widely expected to occur or that would modify some provisions of law that might be typical to sustain for a long period. among other things, the
1:11 am
alternative scenario assumes the extension of most of 2001 and 2003 tax cuts, congenially from the alternative minimum tax, increases in the rate that medicare pays to positions, and elimination after 2020 of some of the cost-reducing provisions of the health-care legislation. neither of these scenarios represents a prediction of cbo of what policies will be in effect in several decades. evidently not a recommendation from cbo what policies congress might adopt. the scenarios are intended instead to illustrate the effects of different policy assumptions, as you will see the differences in outcomes are stark. under the extended baseline scenario, the expiration of most of the tax cuts enacted in 2001 and 2003, the growing reach of the amt, and the way in which the tax system interacts with economic growth would result in rising average tax rates. those rising rates, combined with a tax provision of the reason health-to legislation,
1:12 am
which pushed total revenues to 23% of gdp by 2035. that is the middle row of that table, much higher than has typically been seen in recent decades, and there are larger percentages thereafter. at the same time, government spending on everything other than the major managed health- care programs, social security, and interest on the debt, that is activities such as national defense and a wide array of domestic programs, would decline to the lowest percentage of gdp since world war ii. that's an increase in revenues and decrease in the relative importance of other spending was offset much, though not all, of the rise of spending in health- care programs and social security. as a result, that would increase from the already high levels relative to gdp as would required interest payments on debt. federal debt held by the public would grote from -- excuse me -- an estimated 62% of gdp this year to about 80% by 2035.
1:13 am
interest payments, which have soared federal resources that could otherwise be used to pay for government resources, currently amount to more than 1% of gdp. under this scenario, it would rise semaphore% of gdp, or one sixth of all federal revenues by 2035, and under this scenario, federal debt would continue to rise, even with a very substantial increase in the amount of taxes that people would pay. but the budget outlook is much bleaker under the alternative fiscal scenario. in this scenario, cbo assumed that medicare's rate for physicians would gradually increase, which will not happen under current law, and that several policies enacted in the reason health-care legislation that would restrain growth in health-care spending would not continue after 2020. in addition, under the alternative scenario, spending on activities other than the managed health-care programs, social security, and interest
1:14 am
would fall below the average level of the past 40 years relative to gdp but not as low as under the extended baseline scenario. more important, cbo assumes for this scenario that most of the provisions of the 2001 and 2003 tax cuts would be extended, that the reach of the amt would be kept close to its core circle extent, and that in the longer run, tax law would were moderate -- but change further. above their historical average. under that combination of policy assumptions, federal debt will grow much more rapidly than under the extended baseline scenario. debt as a share of gdp would
1:15 am
exceed its historical people by 2025, just 15 years, and would reach 185% of gdp in 20135. moreover, these projections understate the severity of the long-term budget, because they do not incorporate the substantial negative effects of accumulating additional federal debt would have on the economy. for the purposes of the budget projection, cbo assumes stable economic conditions after 2020. in particular, a constant inflation-adjusted interesting and federal debt and steady growth for inflation-adjusted wages and output. that approach was chosen for practical reasons, but it omits the importance of that debt as a share of gdp than it would have on economic growth period and also omits the impact of higher tax rates and the increasing value of government benefits and what it would do to incentives on working and saving. these are important omissions,
1:16 am
omissions that we're working to address in other work and we are doing. today's report analyzes the economic effects. wheat but to release longer versions of that analysis next month. in brief, several sorts seem most important. to start, large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment, which, in turn, would lower income growth in the united states. the effects of such crowding out are much larger and the alternative fiscal scenario than under the but alternative the baseline scenario. this will be quite some of it within the next decade. let me explain that the top line, the dark line, labeled "stable economic conditions," those undermine the projections. a slightly lower line is slightly less gdp due to less investment and the extended baseline scenario because of the higher debt.
1:17 am
the alternative scenario with much higher debt lead to significantly less savings and investment. that line stops where is across the page because it is based on a rule of thumb of how people respond to changes in debt. was the levels of debt move beyond the historical extremes, we are reluctant to apply the rule of thumb. we are not confident that those results are meaningful, and that is the point at which we stop drawing the line, but you can picture it falling further beyond that point. in addition, the growing debt would reduce the ability to respond to economic challenges and other international challenges that arise. moreover, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in the government's ability to manage the budget. the government would be forced -pto pay much more to borrow funds. but we make three final points.
1:18 am
first, there is no intrinsic contradiction between providing additional fiscal stimulus to date while the unemployment rate is high in many factories and offices are underused and imposing fiscal restraints several years from now, when output and a pointer will probably be close to their potential. for example, one could increase spending or reduce taxes in 2010 and 2011 and offset the budgetary costs through spending cuts and revenue increases in 2014 and 15. essentially paying back later the extra debt the would be incurred now. whether that combination of policy would be desirable is the decision of congress, of course, and as always, a cbo does not make policy recommendations, but it is important understand the difference between the effects of government borrowing when the government is leak -- we and the effects of baring over in definite periods -- the effects
1:19 am
of borrowing. this is relative to what would occur with smaller deficits or a balanced budget, although the magnitude depends critically on the tax-and-spend policies which are used. in contrast, over sustain period, -- sustained periods, moreover even tempore deficits have harmful consequences in the long run unless the government but runs smaller to this later to retire the additional debt. second, the long run fiscal imbalance is large, and eliminating that in balance will require significant changes in tax and spending policy or both. .suppose that your objective for fiscal policy was to finish the next 25 years with a ratio of debt to gdp that is the same as it was at the in the fiscal year
1:20 am
of 2009. still high by u.s. historical standards. cbo projects the this goal would be achieved by immediate and permit reductions in spending or increase in revenues of nearly 5% of gdp, equivalent of almost $700 billion in this year's federal budget, or some other changes over time of equivalent magnitude. it would amount to roughly a one-quarter increase in revenues relative to the amount projected for 2020 and later years. that would require, for example, roughly one half the increase in personal income tax revenue. on the other hand, if the change came entirely from spending, it would represent roughly one- fifth of primary non-interest spending and the amount projected for 2020 and a cut of 16 and the not project for 2035. for example, that would include the near elimination of all
1:21 am
government programs except for social security, medicare, medicaid, and national defence. third, as indicated by 5 percentage point of gdp noted earlier, growth and spending on health care programs remains a central challenge. in the judgment of cbo, the legislation enacted earlier this year made a dent in the problem but did not substantially diminish that challenge. we project that of all the provisions of the legislation, it will reduce federal budget deficits during the next two of the decade and beyond and will reduce federal health-care spending at the end of the next to be a decade and beyond. those are steps in the direction of a sustainable fiscal policy, but they are small steps relative to the length of the jury that would be needed to achieve sustainability. about half of the increase in federal health-care spending during the next 25 years is attributable to population aging, and about half is
1:22 am
attributable to continued growth in health-care costs for beneficiaries. the legislation for the spring includes many provisions designed to restrain health-care spending, and information learned in by the programs and demonstrations established by that will be particularly useful in developing and refining future policies. a particularly important to identify and implement broadly those initiatives and most effectively constrain health- care spending, hopefully without adverse effects on people's health. successful policies will probably require a significant change in the financial incentives facing providers of health care and patience. special incentives related to the development and use of new treatments and procedures. in conclusion, keeping deficits and debt from growing note to unsustainable levels would require raising revenues as a percentage of gdp significantly above past levels, reducing future outlays sharply relative to cbo projections, or some
1:23 am
combination of those approaches. making such changes while economic activity and employment remain below would probably slow the economic recovery. however, the sooner the long- term changes to spending and revenues are agree on, and the sooner they are carried out once the economic weakness and, the smaller would be the damage to the economy from growing federal debt. earlier action would require more sacrifices by earlier generations to benefit future generations. and it would also petco did people more time to adjust to them. thank you very much. >> thank you, doug, and let's open it up. >> so you began by saying though
1:24 am
that the estimated held savings is unchanged, so we're talking about the second to in years, $1.20 trillion in savings. >> our estimate of defense is unchanged, and as we explained in our cost estimate in march, it reduces budget deficits by about $140 billion over the next jr.'s and by an amount in a broader range of the decade beyond that. >> so when you talk about the alternative budget, but you said eliminating imbalance would require significant changes in tax and spending policy. let me finish. reallyt you're affirming, i think, is key elements of the health-care bill, if they were repealed, and that, in fact, the deficit --
1:25 am
the debt would grow even more, and the deficit would grow even more. >> of course, it depends on which elements of legislation where repealed. as you know, legislation -- a >> your alternative budget. >> increased spending is significantly. others reduce it severely. what it does is to turn off the forces that cause further reduction and spending in the second decade, particularly payments, the most important part vote is slower growth in payments to medicare providers under the legislation that would have occurred under prior law. we and others of expressed concern that the death of those cuts is implemented over the next two decades might not be sustainable, and that is why in
1:26 am
the alternative scenario, we wanted to illustrate, in addition to other factors, what would happen if those cuts were deemed by -- >> you have taken a hypothetical about future congressional action. maybe we are underestimating your skills here. we should use you as a prognosticator note and a fortune teller, the issue certainly could never adopted -- for example, what if we do not do spending now, and there was a double dip recession? that would certainly affect the future. so you pick one scenario. i want to make a couple of points about this, because i think it is very, very important that we clarify exactly what you're saying. is it not true that this legislation enacted more deficit-reduction than any other piece of legislation in more
1:27 am
than a decade, assuming we follow the legislation that we passed? >> legislation in the past decade, i think that is true if they are implemented. we do not look out to the second decade. we looked at the traditional 10- year budget window. >> that is even more interesting. you not only looked out at a second decade, but you make out a scenario to present that may or may not take place. you could've picked a number of different scenarios for an alternative on health care, but let me -- >> for most legislation, there is nothing equivalent to this to compare to, so it is difficult
1:28 am
to do a comparison with other legislation, which we have over such a long period. you are right that for the alternative scenario, we have for the second decade and beyond pick a set of policies that are not meant to be a prognostication of what congress will do, but they are not chosen randomly. they are chosen to reflect aspects of current law that a number of analysts have expressed skepticism about sustainability of overtime, and that is some of the tax increases in current law in some of the spending reductions in current law. >> to take into account the we passed statutory paygo? i just think that the speculation given the commitment to reducing the cost of health care, the actual items that are in that legislation that were
1:29 am
hard fought to get, i frankly think it is a departure by the cbo from current past practices of just projecting out based on the legislation, and i think that is irresponsible. thank you. >> i need to disagree with that. it is completely traditional for cbo in the long-term budget outlook to look at a set of alternative scenarios. last june's long-term outlook had an extended baseline scenario. previous outlooks had more alternative scenarios. >> well, that is different. you picked one that shows that there is zero savings in the second to any airs. >> we want to give everyone a chance to ask questions, and we did make a decision that we would use the cbo numbers. they are considered impartial, and we thank you. >> that was a unanimous decision that we would use cbo figures, and i appreciate the
1:30 am
necessity to do with the congresswoman is doing, but i think there is certainly an aggressiveness that does not set the tone here. >> will recognize one index and then congressman ryan. >> first of all, thanks for actually ending up with a think this. i actually found that helpful. i, for one, did appreciate it, so thank you. i think it helps to guide us some, but just to make sure that i understand, it because i read about this stuff externally, and people want to point to the tax cuts, to stimulus spending, to the health-care legislation, but this problem has been going on
1:31 am
for a long time. deep throat and fundamentally, we of this demographic pig that has to work its way through a python, and that is what we have to deal with. is that correct? >> correct, this has been long foreseen. i think the one thing i want to clarify it is the. metaphor. people use that a lot, but it is not that you can get to the other side of the page. the population -- that is a metaphor that people uses -- use a lot, but it can be misleading. the population is aging. the baby boomer, the existence of the very large generation, what they have done this sort of put off the problem, and then it happens very suddenly, because while the group was working, it provided a lot of workers relative to the number of beneficiaries and older groups.
1:32 am
when it means to retirement, it sharply moves the number of beneficiaries. >> the issue is that this is a structural issue that has been coming for a long time. >> yes, that is correct. >> and we are finally just at that point where we have to do something. >> yes, exactly. >> congressman ryan and then chairman konrad. >> this is helpful, i think, to illustrate based upon the pattern of congress, and a emt patch, to see where we stand when we do these things. this predates your tenure at cbo. >> many of presented alternative scenarios. >> so i think it is helpful. i would argue that we ought to use the cbo baseline. i think most people would agree with that, and we ought to use
1:33 am
the alternative scenario, because that is the most realistic one. i would just argue for her own crudup purposes of establishing our fiscal targets, we have to look at what baseline we use, and that is a discussion in a little while the we ought to have. >> we have already agreed to use the cbo numbers. >> the baseline. we're talking about the baseline for our targets. it matters greatly. >> and the baseline was my comment last week. note >> on page 20, we discussed this half an hour ago. walk me through a quickly, and then i just have one other question. but the crowning of defects. " what exactly is happening there? did our motto just crash because it cannot conceive of a way for a to continue? is that essentially what happens? >> we go back to the slides, and i think it is slide 7.
1:34 am
page 20. the same picture. again, the only aspect of the crowding in effect, the model does not crash in that sense. it becomes in our judgment unreliable. we use a will of thumb estimated over a period with the debt and does it that news of research and range, we do not know what the response would be. >> there is nothing conceivable where the economy can continue on in some sort of glidepath? >> at-bat went, gipp to gdp would be higher in this country than it ever has been in this country and higher than in most countries at most times, so we're simply entering uncharted
1:35 am
territory, and the risks posed by that are i think a very important consideration. >> this is to be a very important one. you are looking at the mandatory projections. i am looking at the health care spending spree and pose health care law, health-care reform, and it looks to me, you tell me that the 2010 projection, this really does not been the cost curve very much. this is still going up. even with the legislation. is that correct? >> the like -- a light gray line of shows the health spending last year.
1:36 am
the other black line is the projection we would have excluding the effects of a desolation, and that downward revision reflects changes in our methodology and i can talk about, if you like. the difference between that line and a solid black line are the affects on spending. spending goes up. " this is relative to the previous laa between basically 2015 and the late 2020 s and then falls below prior lot the slower growth relative to prior law largely reflects this slowdown in the growth rate of payments to providers. this is also a factor. >> that is part of the 529? >> at 2030, that is as far out
1:37 am
as we looked, through march, and we said at the time that we did not think we had an analytic basis for judging beyond that, so from 2030 to the rest of this picture and then beyond, the longer term projection, we have applied the same growth rates that we would apply, a mechanical assumption. >> but the assumption is that health care costs are continuing to upper? >> continuing to go up. it is extrapolated out. that lowers the level of spending, but we do not think we have a basis for doing that. >> you and i have had lots of questions about predicting labor force participation in ticking of rates in the exchanges. have you run different scenarios in the exchange's? it is a trade-off between the exclusion and the subsidies and
1:38 am
the distributional effects of that. how many people do expect to be in the exchange at the end of the decade? b, have you taken different runs as far as different decisions? most employers would continue to compete for labor based on benefits and therefore continue to offer employer sponsored health insurance than with some outside actuarial model would have predicted? what are the results of that? >> so we have not run different estimates of the effects of the legislation. i think we estimated about 25 million people would be in exchanges at the end of the decade. on the small amount of employer dropping. here. >> they were moving into the exchanges, only a small reduction in employer sponsored insurance. we need to think hard about how
1:39 am
to do that. it is the model, employers and employees make choices on the costs they see in different places, so the effects of more employers dropping insurance coverage depends on why they are dropping. what is not right? what are we missing? and you get different answers, because it matters a lot who drops. it is mostly low-wage workers dropped more. others end up collecting more tax revenue, so the reason for the drop of the matter, -- >> i am sure that everybody else has had the anecdotal conversation with larger employers the say that they're going to drop the coverage. i have had dozens of conversations like that, so i think it is worth our while for our estimates to see what kind of rates it will have on that.
1:40 am
thank you. >> this is the order korea of if that is all right, and then the doctor. and then you, senator. >> take you for that. what i heard you say, director elmendorf, is that this does reduce the deficit, both in the short term and in the long term, but that does not solve our problem. our problem is so big that the savings that accrue as a result of that legislation are not
1:41 am
sufficient to solve the problem. and, in fact, as i heard you describe it, what is going to be necessary to solve this problem over an extended period of time are either 25% increase in taxes or a 20% reduction in spending or some combination thereof in a future year. is that correct? >> that is the order of magnitude, yes. >> then let me go to the alternative scenario, and i know others who are not on the budget committees do not spend a lot of time looking at the cbo alternative scenarios, but we have actually found them useful. >> thank you.
1:42 am
>> and the started, as i recall, about five years ago, maybe six years ago, doing odd turn to some areas, in one of the reasons was simply the tax cuts that were put in place in 2001 are scheduled to expire. we all know that some of those tax cuts will not expire. there is very strong support for extending at least the middle class tax cut, which are a very substantial long-term cost, so many of us thought it was useful to have an alternative scenario, which we would look at. what happens in some are all the tax cuts do not expire? what happens if the alternative minimum tax is continued to be adjusted so you do not have a big tax increase on people? that was unforeseen.
1:43 am
what happens if you continue to look a the doctors who treat medicare patients? are not all of those part of the alternative scenario? >> yes, they are, senator. >> so, really, this was an attempt by cbo to help us look at what might happen if various things occurred, which might actually happen, that we continue to fix the alternative minimum tax to prevent a large tax increase from being imposed. what would happen if some of the tax cuts from 2001 and 2003 are extended? what happens if we make other changes for doctors reimbursement and treating of medicare patients? you have added now apparently in health care some provisions that some analysts have indicated
1:44 am
might not be continued, that there might be a backlash against certain provisions to try to accrue savings that people might resist. you know, whether we look get back or do not look at that, the hard reality for this commission is we are in a circumstance in which it is just as clear as it can be note, under any scenario that we face an unsustainable long-term debt, and is going to take adjustments in spending and popular programs and/or adjustments in revenue in order to deal with it. is that not the appropriate conclusion? >> yes, i think that is right, senator. >> and the adjustments needed are really quite large. we are not talking about modest changes. we are not talking about just tinkering around the edges of major spending programs, like
1:45 am
medicare and social security, like the revenue base of the country, in order to address this problem, and what you're talking about, as i understood it, was to get a publicly held debt that would be stable at 53% of the gross domestic product of the country. >> that is right. that is the particular examples offered in my comments. >> let me ask you this. if, instead, we adopted what some are saying, that we would hold the debt at 60% of the gross domestic product of the country, lower debt than we have now, modestly, with debts substantially change your assessment of what would be needed in terms of either spending cuts or revenue increases in order to achieve that goal? >> it would slightly reduce the
1:46 am
changes but not substantially korea i work those numbers up for you. >> one final point. the publicly held debt that you're referencing, when we talk about 53% of gdp, you can roughly of 30% to get to what would be the gross debt, so 53% would translate into 83% to harmonize with what it carmen was telling us that her study shows that when societies, when countries into a gross debt of 90 percent of gdp, they start to meaningfully impair their long term and a benign growth. >> i think that is right, but let me say a few words. that person is a member of our economic advisers. i have spoken with the person a number of times, including at our recent panel meeting. in our book which has received a lot of attention, but this was
1:47 am
the data was available in a comparable way across many countries across many years of time. gross debt also captures, as you know, senator, some of the implicit situations in social security and medicare but not all of them. the cbo analysis focuses on debt held by the public, representing the official legal obligations that have accrued to date and and looking at projections of unified spending. so we do not generally talk about gross debt. the study they performed, they looked at different categories of gross debt. they look at countries with gross debt of 30% of gdp. and so on. they do not have sufficient data. this is to try to look at whether there is a particular tipping point, so reviewing that threshold as on one side, the
1:48 am
effects are much smaller, and on the other side, they are much smaller. that does not mean that something special happened that 90%. as we have seen in european countries recently, responses to debt depends on not just hitting a particular number but also on investor perceptions about the ongoing policy and the willingness of the country to make policy changes, and so on. >> and the trajectory that a country is on. put the conclude because i wanted to translate for people who might be listening the heard the discussion of 90% gross debt, so what you're talking about, publicly held debt, and the translation is to add about 30%. 53% debt to gdp. the equivalent would be about 90%. >> today, yes, that is right. >> thank you.
1:49 am
those are the points that i wanted to raise, as well. you said research to 62% of gdp by the end of the fiscal year, and korea and talking in terms of gross debt in this commission, so we are at 90. the treasury report that came out a few weeks ago said we will be 100% of gdp. i am sure you have seen those numbers. i want to thank you for this report. we have not had a chance to analyze it as much as we would like. i appreciate the chance to have this. certainly, health care spending does go up above what it would be without the health care. it looks that way. there are a couple of points i wanted to make, and one was the medicare actuaries that warned us that the medicare reductions were not sustainable in were
1:50 am
likely to be carried out over time, because of the jeopardizing note of the senior access to healthcare. in your alternative scenario however, that is not one of the assumptions you make. you are assuming that the health-care moves forward, as and stay in your testimony. you do not accept those in your alternative budget scenario. >> we do after 2020, so in the extended baseline scenario, the one like current law, we assume that the legislation unfolds as written down 32030 using the estimate we used earlier in the year, and then beyond 2030, extrapolated using the same growth rates for spending. the alternative scenario, we essentially follow our cost estimate out to 2020, except
1:51 am
that we put in a medicare payment, but otherwise, after 2020, and be on that point, we extrapolate using what we have done in the absence of legislation. the effects that it has of the first decade is a level of spending, and that is extrapolated out. >> then in your alternative scenario, there was an increase in medicaid, almost half of $1 trillion. do you assume that is sustained in the alternative scenario, as well? >> yes, we treat the changes symmetrically. we are capturing this. >> and i just want to understand, finally, what do you
1:52 am
project government spending and revenue to be as a percentage of gdp? and how does that compare to the historical average? under either scenario, federal spending is significantly higher over the longer run than has been in history. under the extended baseline scenario, revenues are some vivid and higher than they have been in our history. and the alternative scenario, revenues are not higher. that was the design objective. >> all right, thank you. >> thank you, congressman. >> dr. elmendorf, thank you for being here. sorry i missed your pressntation. i was on the floor, making a speech about deficits. but here is my concern. i will try to summarize it if i can. we have a pretty tough challenge here in terms of what we have been asked to come up with. i do not know if it is politically possible as a look
1:53 am
around the table. we're all pretty nice folks, and we need to see if we can try to come together. i am try to understand the point made in your presentation, and one eye and try to come to grips with korea this morning's "the new york times" talks about was a vote -- talks about roosevelt, and even though john maynard keynes was not popular at the time, he tried a keynesian approach, trying to put money into the community, trying to korean war aggregate demand and moving the economy out of the depression, and with some success, but then, he decided it was time to hit the brakes. we have a deficit, so he backed off of the stimulus. and as he backed off, the depression started whirring again, with higher and higher unemployment, and some say we suffered as a nation with us until the advent of world war two, when we started the economy would virtually full employment
1:54 am
and moved us to a different place. i am trying to put that historical lesson in the context of today. as we look at our charge year to bring down our nation's long- term debt, we do in a face of a pretty serious recession, and some say $8 a -- 8 million people. and this is growing at a slower pace. and there are concerns about whether or not we are going to sink back into a deeper recession if we are not careful. i happen to believe that we are making some mistakes. we have been told over and over again that there is a way to bring this of this recession, but we're going to fail to do that, again today. 1.2 million americans will lose their unemployment benefits. the point i am getting to is this. what should be our starting point? if we say we are now going to move towards the austerity of
1:55 am
spending scots and tax increases, what should we accept as our starting point to judge the we're out of the recession, our economy is stable, and it can now afford to stop spending money, stop cutting taxes, and start dealing directly with what is needed to deal with the long- term deficit? >> well, senator, you used the word should in your question, and as you know, "should" is not a word that cbo uses. you should do you and your colleagues choose to do. what i said in my remarks is that there is no intrinsic contradiction between providing fiscal stimulus to day when the unemployment is high and fell trees and offices are underused and imposing fiscal restraint several years from now when output and employment are returned closer to the potential. the last projection from cbo released in january and maintained as the underpinnings
1:56 am
for our march budget projections was looking for a slow economic recovery, and that is what we are experiencing. there are, in fact, gdp stronger than we expected. unemployment is a touch lower, but in broad terms, our expectation of the recovery seems to be, so far, roughly on track. there is a great deal of uncertainty at this point about whether the economy will gather momentum or whether it will maintain a slow pace of expansion or possibly slip back. economicwe're updating forecast for our updated budget. at this point, i do not expect dramatic changes. we are still expecting a slow recovery. under the projection, the unemployment rate does not come down to the neighborhood of 5% for four years. it takes a long time. there are about 20 people have
1:57 am
lost jobs but several people who would have lost jobs because of the population had we not had a recession, so you can think about the people who will need jobs, and if you work out the mathematics, you need hundreds of thousands per month for a number of years to put all of >> if i can follow up, to draw the analogy, if a doctor says to take all of the antibiotics even though you feel you are well, keep taking it, because the studies show that if you quit to assume, you get even sicker, so my question to you is are you saying it will be four years before the cbo sees our economy stabilizing to the point we can consider real deficit reductions? we still need to deal with increasing debt? to stimulate the economy and grow the gdp?
1:58 am
>> i think what most analysts would say is that reductions in spending this year or increases in taxes this year would slow the economic recovery, and they would say the same thing about next year. i think most analysts would also tell you that reaching agreement on a longer-term reduction in spending or increases in taxes or some combination as quickly as possible with actually support the economic recovery because it would provide some clarity of the policy that is missing when a lot of important pieces of the tax and spending side are hanging in the balance. >> one last question. can you give us a basic premise that can be used? after x number of quarters of
1:59 am
gdp growth or x percentage of on a point, we can now seem to save the economy has recovered from this recession, and we can deal with what is necessary? the spending cuts, tax increases to do with our long-term debt? >> i do not think i have an analytic basis for picking a threshold for you. as the economy strengthens, as unemployment falls, then it becomes increasingly less problematic to implement these this could change as you are discussing and increasingly reject increasingly important in terms of stabilizing debt, but i do not think it is a particular tipping point that i could identify for you, senator. >> thank you. we are now going to go to a representative. a and representativebecerra,

63 Views

info Stream Only

Uploaded by TV Archive on